Mortgages in California: Blood in the Streets

by: Brian.Brady on November 26, 2007 18:16:42 Leave a comment »

I wrote an article about the California Governor's brokered deal with loan servicers:

Is this measure politically motivated? You betchya. The Governator is taking care of his own, regardless of the inequities it levies on the rest of the country. The lenders are in a bind so they’ll appreciate this artificial market stabilization until the rest of the country catches up. This is Nixonian economics, plain and simple. THAT interventionist policy exacerbated rather than solved the problem of inflation.

What I’m about to say will be unpopular in the Golden State; housing prices are artificially inflated and need to come down meet rational economic models. Borrowers who make $90,000 annually can’t afford $700,000 homes. You can intervene in markets but the price of Amsterdam tulips will naturally gravitate towards its real economic value.

While I don't like the idea of reckless borrowers getting a free ride, Robert Kerr exposed the insidious nature of the lenders' motivation in this comment:

This CA proposal has to rank right up there with the most well-disguised scams of all time. The Governor is busy patting himself on the back, the press is fawning over the lenders’ benevolence …and the lenders are laughing all the way to the bank.

This isn’t a bailout, it’s Loan Sharking 101. When your borrower starts drowning under the vig, you cut back the vig, roll it over onto the principal and keep bleeding, at a slower rate.

Did Arnold’s advisors get this great idea from watching Richie Aprile run his shy on The Sopranos?

An upside-down borrower with a $400K mortgage on a $300K home isn’t helped with temporarily frozen payments. If the lenders really wanted to help, they would reappraise and write off some or all of the overvaluation.

Did he really just say that? He compared the loan servicers to organized crime? Yes, he did. I liked his analogy so much that I've been using it in comments today.

What I'm about to say will appear as callous. I guess it's meant to be. I don't really care about the borrowers who gambled their future to, as Elizabeth Weintraub said in the comments here, "worship at the Church of Almighty Real Estate". These borrowers weren't smart enough to hire me to arrange a loan that meets their goals and means test. Perhaps the loan hack, who hustled them into the loan, can walk across the mall and round up the new home builder's agent to come back and answer for their misdeeds.

Borrowers knew they were getting a smokin' deal...for two years. They knew the party would end. I've talked to a lot of them, over the last twelve months, and advised most of them to contact a good REALTOR and sell... before the blood was running in the streets. Why ? They couldn't afford the loan in the first place. 4th Grade math could prove that simple fact. Rather than take my FREE advice, most have decided to wait for a government bailout. The Governor, a well meaning man, decided to do just that. Except it's not a bailout, it's a hustle (as Robert Kerr pointed out).

Let the foreclosures happen and let them happen fast. We're going to have blood in the streets in California; the prices are unreasonably high here. Better to lose that limb so we can cauterize the wound rather than to die a slow and tortuous death. I have a list of pre-approved buyers (who WERE smart enough to hire me) waiting for that to happen.

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